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Drafting Severance and Confidentiality

Agreements Amid New EEOC, NLRB,

and Now SEC Scrutiny Anticipating and Avoiding Agency Challenges to Non-Disparagement, Cooperation,

Confidentiality, No Rehire, Covenants Not to Sue, and other Common Provisions

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

WEDNESDAY, SEPTEMBER 9, 2015

Presenting a live 90-minute webinar with interactive Q&A

Kerry E. Notestine, Shareholder, Littler Mendelson, Houston

Christina A. Stoneburner, Partner, Fox Rothschild, Roseland, N.J.

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Drafting Severance and

Confidentiality Agreements

Amid New EEOC and NLRB

Scrutiny

Wednesday, September 9, 2015

Presented by:

Kerry E. Notestine

Littler, Houston

knotestine@littler.com

713.652.4748

Christina A. Stoneburner

Fox Rothschild, Roseland, N.J.

cstoneburner@foxrothschild.com

973.994.7551

5

Agenda

EEOC requirements and

legal framework for

severance agreements

NLRB requirements and

legal framework

– Confidentiality provisions

– Employee behavior and

conduct policies

– Non-disparagement

provisions

Drafting best practices

6

EEOC Requirements and Legal

Framework for Severance Agreements Kerry Notestine, Littler

A

7

Background to Current Issues

This is NOT just about the OWBPA and Age

issues

EEOC Enforcement Guidance on non-waivable

employee rights under EEOC enforced

statutes, EEOC Notice 915.002 (4/10/97)

29 USC § 626(f)(4) codifies this obligation for

claims under the ADEA.

EEOC v. Eastman Kodak, 2006 case under

Title VII and the ADEA.

8

Kodak Consent Decree

“Except as described below, you agree and covenant not to file any

suit, charge or complaint against Releasees in any court or

administrative agency, with regard to any claim, demand, liability or

obligation arising out of your employment with Kodak or separation

therefrom. You further represent that no claims, complaints, charges,

or other proceedings are pending in any court, administrative agency,

commission or other forum relating directing or indirectly to your

employment by Kodak.

Nothing in this Agreement shall be construed to prohibit you from filing

a charge with or participating in any investigation or proceeding

conducted by the EEOC or a comparable state or local agency.

Notwithstanding the foregoing, you agree to waive your right to recover

monetary damages in any charge, complaint, or lawsuit filed by you or

by anyone else on your behalf.”

Consent Decree, EEOC v. Eastman Kodak (W.D.N.Y. October 11, 2006). 9

EEOC v. Baker & Taylor

EEOC sues Baker & Taylor May 20, 2013

EEOC and Baker & Taylor enter into sweeping

consent decree July 2013

“Employees retain the right to participate in

any action [before the EEOC or comparable

state or local agencies] and to recover any

appropriate relief.”

10

CVS and CollegeAmerica Cases

11

EEOC v. CVS Pharmacy

EEOC sues CVS

Pharmacy on February 7,

2014

EEOC alleges “Pattern or

Practice” of unlawful

conduct

Release agreement

attached to Complaint

Covenant not to Sue

includes Charge Carve-

out 12

EEOC v. CVS Pharmacy

Provisions challenged

• Covenant not to Sue

• Non-Disparagement and Non-

Disclosure

• Notification

• Remedies including Attorneys’

Fees

• Five-Page Single Spaced

Document

13

EEOC v. CVS Pharmacy

Motion to Dismiss

No Unlawful Discrimination

No Pattern & Practice

EEOC failed to Conciliate

Court Dismisses Case

based on Conciliation

Issue

Currently on Appeal.

14

EEOC v. CollegeAmerica

EEOC Phoenix District Office sues

CollegeAmerica in Denver on 4/30/14

Employee (Potts) Resigned

Signed Settlement Agreement

$7000 payment and No Dispute on Unempl.

Agreement Not to Contact Gov’t Agency

Forward Complaints and Non-Disparagement

15

EEOC v. CollegeAmerica

Allegedly disparaging emails with another

former employee that are forwarded to

Company

Potts files Charge

Company sues Potts 7 days later

Potts files two Retaliation Charges

16

EEOC v. CollegeAmerica

Potts and 4 Form Agreements Attached to Complaint

Prohibits Filing Charge/No Carve Out

EEOC challenges Additional Provisions No Claims

Certification of Non-Compliance Disclosure

Severability Clause

CollegeAmerica filed MTD on Same theories as CVS

Court Dismisses Interference

Claim based on Failure to

Conciliate

Retaliation Claims Remain

17

SEC v. KBR

KBR used a Confidentiality Statement For

Internal Investigations Covered by Attorney

Work Product Privilege

Required Confidentiality Unless Law

Department Agrees to Disclosure

No evidence that the Agreement Prevented

Anyone From Contacting the SEC

SEC Claims Statement Violated SEC Rule 21F-

17 which prevents interference with SEC

investigations

18

SEC v. KBR

KBR Agrees Amend Agreement to Carve Out

Right to Complain to SEC and Participate in

SEC Investigations

Employees not required Law Department

Approval to make reports or participate in

investigations

$130,000 Civil Penalty

19

NLRB Requirements and Legal

Framework Christina A. Stoneburner, Fox Rothschild

A

Can a Severance Agreement Waive Claims

Under the NLRA?

General Rule is that Severance Agreements should be

treated as any other non-Board settlement and Board

would defer after examining:

─ Whether the parties have agreed to be bound, and the position

taken by the General Counsel regarding the settlement;

─ Whether the settlement is reasonable in light of the violations

alleged, the risks inherent in litigation, and the stage of litigation;

─ Whether there has been any fraud, coercion, or duress by any

party in reaching the settlement; and

─ Whether the respondent has a history of violations of the Act or

has breached past unfair labor practice settlement agreements

(Independent Stave Co., 287 NLRB 740, 743 (1987)

21

Can a Severance Agreement Waive Claims

Under the NLRA? (cont.)

NLRB may or may not defer to the

terms of the severance agreement

Even an employee who signed a

severance agreement may later file

an unfair labor practice charge or

recover money in the event a

charge is filed on the employee’s

behalf

22

Cannot Be an “End Around” the Union

Hotel Bel-Air and Unite Here Local 11, Case

31-CA-029841 (September 27, 2012)

─ NLRB invalidated severance agreements that were

directly negotiated with employees

• Terminations and severance pay were subject to

negotiations with Union

• Company claimed they were at impasse so sent

severance letters directly to employees

• Board held not at impasse and thus company was

prohibited from dealing directly with employees

23

Why Has the NLRB Been Actively Reviewing

Severance Agreements?

Memorandum OM 08-13

(December 5, 2007)

Issued to all Regional

Directors Calling for

them to Actively

Investigate Waivers

24

Confidentiality and Non-disparagement

Provisions: Why Does the NLRB Care?

NLRA Section 7:

“Employees shall have the right to self-

organization, to form, join, or assist labor

organizations, to bargain collectively through

representatives of their own choosing, and to

engage in other concerted activities for the

purpose of collective bargaining or other mutual

aid or protection . . .”

25

Confidentiality and Non-disparagement

Provisions: When Did the NLRB Start Caring?

Not a new concept

See, for example, Metro Networks, Inc,. and American

Federation of Radio and Television Artists,

Philadelphia Locals, AFL-CIO, Cases 4-CA-26812 and

4-CA-27207 (September 28, 2001)

Violation of Section 8(a)(4) where fired employee for

union activity and then gave release with unlawful

confidentiality provision:

─ Stating employee would not “publish, publicize, disseminate,

communicate or cause to be published, information concerning

your employment . . . , the existence of this Agreement or the

terms described herein except to your immediate family, attorneys,

accountants, or tax advisors.”

26

But Why the Sudden Focus?

In part, because this has become

an enforcement issue at the

federal level with the EEOC

As overall union representation

declines (now approximately 8%),

NLRB has been more aggressive

about enforcing rights to engage

in concerted activity in actively

reviewing handbooks, social

media policies and severance

agreements

27

Confidentiality and Non-disparagement Provisions:

What Does the NLRB Care About?

Broad provisions that prohibits or would

reasonably lead an employee to believe that

they are prohibited from saying anything

about the employer or that restrict right to

concerted activity

28

General Counsel Guidance Memo

Memorandum GC 15-04, March 18, 2015

─ Although not focused on severance agreements,

provides guidance on complaints of broad

confidentiality provisions.

─ Unlawful:

• Do not discuss “customer or employee information”

• Never publish or disclose employer’s or another’s

confidential information

─ Lawful:

• No disclosure of “business secrets”

29

Guidance Memo (cont.)

Lawful Confidentiality Provisions:

• No disclosure of “business secrets”

• Do not disclose confidential financial data or other

non-public proprietary company information

30

Guidance Memo Re: Non-Disparagement

Clauses

Unlawful

─ Prohibitions on saying anything negative, disrespectful

or rude

─ False statements

─ Do “not make fun of, denigrate, or defame your co-

workers, customers, franchisees, suppliers the

Company or our competitors”

─ Refrain from causing damage to the Company’s

business or reputation.

31

Guidance Memo: Non-Disparagement

Clauses – What Can You Say?

Lawful

─ Must be respectful to coworkers, clients or competitors

(but not employer or management)

─ No “rudeness or unprofessional behavior toward a

customer, or anyone in contact with the Company”

─ “Being insubordinate, threatening, intimidating,

disrespectful or assaulting a manager/supervisor,

coworker, customer or vendor will result in discipline

32

Confidentiality and Non-disparagement Provisions:

How Much Does the NLRB Care?

Not uncommon for NLRB to include in Notices

to Employees where violation is found that the

employer “will not require you to sign a

severance agreement or any agreement that

contains confidentiality or non-disparagement

clauses that restrict you from engaging in

protected concerted activities

─ See Board Decision in Pratt (Corrugated Logistics),

LLC and Teamsters Local 773, Cases 04-CA-07963,

04-CA-079858, 04-CA-079976, and 04-RC-080108

(February 21, 2014)

33

Problems With Severance Agreements in Pratt

Extensive discussion in the ALJ decision (JD-

08-13) of problem provisions:

─ Provision that prevented the employee from disclosing

the “contents” of the agreement with anyone except

family or financial or legal

─ Provision that prevented the employee from making

statements or engaging in conduct that “disparages,

criticizes . . . or otherwise cases a negative

characterization upon . . . any Pratt Entity . . . nor

encourage or assist anyone else to do so.”

34

Problems With Severance Agreements in

Pratt (Cont.)

Non-disparagement clause was not saved by

provision saying that is does not prevent

signatory from testifying in a legal proceeding

or complying with a subpoena

─ Employees must be able to consult with other

employees and their union on employment matters

35

Drafting Best Practices Kerry Notestine, Littler

Christina A. Stoneburner, Fox Rothschild

A

Drafting Best Practices

Don’t overreact

─ EEOC does not seem to be challenging the validity of

the releases themselves

─ BUT: Companies that make themselves a target must

either litigate or make the EEOC their drafting partner

on future releases

37

What You CANNOT Include

“In exchange for the

consideration contained in this

Release Agreement, I agree not

to file any claim, action,

complaint, charge or other

proceeding against the

Company”

38

Why Not?

29 U.S.C. §626 (f)(4): “No waiver agreement

may affect the Commission’s rights and

responsibilities to enforce this chapter. No

waiver may be used to justify interfering with

the protected right of any employee to file a

charge or participate in an investigation or

proceeding conducted by the Commission.”

EEOC Enforcement Guidance on non-waivable

employee rights under EEOC enforced

statutes, EEOC Notice 915.002 (4/10/97).

39

What You CANNOT Include

“I agree that if I hereafter bring

any action or proceeding of any

kind against the Company, the

Company shall have the right to

recover from me all sums paid

pursuant to this Release

Agreement, in addition to any

damages the Company shall

suffer”

40

Why Not?

29 U.S.C. §1625.23 (Waivers of Rights and

Claims: Tender Back of Consideration); Oubre

v. Entergy Operations, Inc., 522 U.S. 422

(1998).

However, it is permissible to include a tender-

back provision for violation of other

provisions of the Release Agreement,

including disclosure of confidential

information, non-disparagement of Company,

non-solicitation, etc.

41

What You CANNOT Include

“I agree that I shall not at any

time hereafter give testimony

to, or otherwise cooperate

with, the EEOC or any

individual bringing a claim

against the Company”

42

Why Not?

“Agreements that attempt to bar individuals from

filing a charge or assisting in a Commission

investigation run afoul of the anti-retaliation

provisions because they impose a penalty upon

those who are entitled to engage in protected

activity under one or more of the statutes

enforced by the Commission.”

─ EEOC Enforcement Guidance on non-waivable employee

rights under EEOC enforced statutes, EEOC Notice 915.002

(4/10/97).

─ EEOC v. Astra USA, Inc., 94 F. 3d 738 (1st Cir. 1996).

43

What You CANNOT Include

“I agree that in order to receive

the payment set forth in this

Release Agreement, I must first

withdraw the charge I previously

filed with the EEOC, Charge No.

XXXXXX”

44

Why Not?

To require a person to withdraw her EEOC

charge as a condition of receiving severance

pay violates the anti-retaliation provisions

contained in the ADEA (29 U.S.C. §623(d)) and

Title VII (42 U.S.C. §2000e-3(a).

─ EEOC V. Lockheed Martin Corp., 444 F. Supp. 2d 414

(D.C. MD 8/8/06).

45

Drafting Best Practices

Continue to include release of claims for

individual relief in agency proceedings

Continue to require representation of whether

a charge is pending

Continue to require agreement not to reapply

Consider requiring employee disclosure of

known company non-compliance with

regulatory obligations

46

Drafting Best Practices

For pending charge, weigh risks of requiring employee to request withdraw charge and right to sue

For pending charge, consider having employee advise EEOC of settlement and employee’s satisfaction therewith, with no explicit request for file closure

For pending charge: ─ Do not make actual withdrawal of charge a condition precedent to

payment

─ Consider making EEOC approval of settlement a condition of having a settlement (generally not advised)

─ Unless seeking EEOC approval as a condition of the settlement, do not make actual closure of charge a condition precedent to payment

47

Drafting Best Practices

Include carve out of agency charges

(regardless of other release terms)

─ Cover all governmental complaints (EEOC, NLRB,

state agencies, others)

─ Consider using a separate, highlighted paragraph

(omnibus carve out)

─ Consider referring to the carve out in each section that

might restrict assistance to an agency, e.g.,

confidentiality and nondisparagement

48

Sample Agency Charge Carve Out

Nothing in this Agreement including but not limited to

the release of claims, proprietary information,

confidentiality, cooperation, and non-disparagement

provisions, prevents Employee from filing a charge or

complaint with or from participating in an

investigation or proceeding conducted by the EEOC,

NLRB, or any other federal, state or local agency

charged with the enforcement of any laws, although

by signing this release Employee is waiving rights to

individual relief based on claims asserted in such a

charge or complaint, except where such a waiver of

individual relief is prohibited.

49

Drafting Best Practices

Consider foregoing the covenant not to sue

Revise or eliminate troublesome terms

─ Noncooperation with agency

─ Cooperation with employer

─ Confidentiality

─ Nondisparagement

─ Claims for breach by employee (prevailing party

attorney fees, etc.)

50

Drafting Best Practices

CVS: “Among other things, the five-page

single spaced Separation Agreement states . .

..” (emphasis in original).

The lesson:

─ Simplify

─ Simplify

─ Simplify

─ Simplify

─ Simplify

51

Resources

March 4, 2014 ASAP

on CVS

May 13, 2014 ASAP on

CollegeAmerica

52

Drafting Best Practices

Give employees sufficient time to review the

Agreement

─ Decisions applying the Independent Stave analysis

have upheld waivers of claims where employees had

45 days to review to the Agreement

• See BP Amoco Chemical – Chocolate Bayou, 351

NLRB No. 39 (September 29, 2007)

• Hughes Christensen Co., 317 NLRB 633 (1995)

53

Drafting Best Practices

Set forth in the Agreement that the employee

has the right to consult with an attorney

Consider also adding “union representative”

Be careful that other provisions of the

Agreement may not be read to restrict

concerted activity such as:

─ Statements that no further legal action will be filed

─ Non-cooperation and/or non-solicitation clauses

54

Drafting Best Practices

Add a Section 7 savings clause that nothing in

the Agreement is intended to interfere with an

employee’s Section 7 rights

55

Drafting Best Practices

Confidentiality provisions should be narrowly

drafted.

─ Generally the money is really what an employer wants to

keep confidential.

• Confidentiality provision can lawfully provide that

employee cannot disclose the amount paid except to

family, tax or legal advisors

─ Be careful about including broad provisions that forbid an

employee from discussing his or her employment

─ If there are specific things that you require to be confidential

such as trade secrets and proprietary business information,

provide specific examples of what those terms mean

56

Drafting Best Practices

Non-disparagement clauses should not just

say that an employee may not say “anything

negative”

─ Consider saying that the employee can not “defame”

the employer or any released party

─ Can still prevent the employee from “disparaging”

customers, suppliers, or vendors

57

THANK YOU

Kerry Notestine, knotestine@littler.com Christina Stoneburner, cstoneburner@foxrothschild.com

58